During a typical transaction between home seller and buyer, reviews and contingencies occur during escrow. These reviews allow both parties to do their due diligence before completing the sale. Competitive markets pare down or eliminate some of these, while others only apply to specialized transactions. Work with your agent to decide what is suitable for your circumstance. The sections below highlight common reviews and contingencies with typical timelines for the Seattle area and Washington state. Talk with your real estate agent or attorney to understand the specifics of your contract and which reviews or contingencies apply.
Financing Contingency: Applying for Your Loan
The financing contingency outlined in the contract gives you a specific timeframe to apply for your loan. Typically, you'll have about five days to use. The loan application is different than getting prequalified or preapproved. During this time, you'll need to provide all the necessary documentation to your lender and work with them to secure financing for your new home.
If you cannot secure financing within the required timeframe, you'll need to either waive the contingency or give notice to terminate the contract. This is an important deadline to remember, so ensure you're working closely with your lender to stay on track.
Other Funds: Arranging the Necessary Finances
Once you've secured financing for your new home, you must arrange the necessary funds to complete the purchase. This may involve liquidating assets, selling stocks, withdrawing from investment accounts, or other financial moves. Your real estate agent and mortgage lender can help guide you through this process and ensure you have the funds needed to close on your new home.
Appraisal Contingency: Third-Party Value Assessment
The lender will typically require an appraisal of the property to ensure it's worth the sale price. During the appraisal review period, the appraiser will visit the property and assess its value based on several factors, including its location, size, condition, and comparable sales in the area.
If the property appraises for less than the sale price, the buyer must make up the difference with other funds or formally dispute the appraisal. Disputing the appraisal can be a complex process, so working with a knowledgeable real estate agent or attorney is essential to navigate it successfully.
Inspection Contingency: Reviewing the Property
The inspection contingency is a critical part of the home buying process. During this review period, a licensed inspector will conduct a thorough review of the property and report any material defects that may require attention. The inspector will provide a detailed report with photos and descriptions, but repairs and solutions are outside their expertise. If the inspector finds an issue, they will indicate what type of contractor or special inspection applies and the implied urgency surrounding the issue.
The standard window for executing an inspection is ten days. Within that timeframe, notify the seller that you either approve the results or not. If the results are not supported, the contingency allows for further negotiations for repairs, credits, price adjustments, or other incentives to compensate for any defects uncovered during the inspection. The other result of a buyer not approving the results is terminating the contract.
Title Contingency: Reviewing the Preliminary Title Insurance Commitment
During the title contingency review period, the buyer should carefully read and review the preliminary title insurance commitment provided by the seller. This document includes essential information about the property's title, such as liens, encumbrances, and any legal issues that could prevent the seller from transferring clear title to the buyer.
If there are issues with the title, the seller should be asked to resolve them before closing. Title issues can take time to resolve, so it's best to address them early in the process. Doing it quickly will avoid any delays in the closing process.
Neighborhood Review: Confirming Your Satisfaction with the Surrounding Area
The neighborhood review is an optional part of the inspection addendum. It may include investigating schools, proximity to bus lines, availability of shopping, traffic patterns, noise, parking, and investigation of other neighborhood, environmental, and safety conditions you may determine to be relevant in deciding to purchase the property. Take the time to research the area and explore it to make sure it's a good fit. This review period typically lasts three days.
HOA Review: Resale Certificate Review for Purchase of a Condominium
If you're buying a condominium, you'll be provided with a resale certificate that contains a wealth of information about the building and its management. This document should include information about the HOA's finances, rules and regulations, meeting notes, and other important details.
During the resale certificate review period, you have five days to review this document carefully and understand its contents. It's essential to work with a knowledgeable real estate agent who knows what to look for within the certificate. These packets of documents can be dense. Run any questions by your agent and make sure you're comfortable with the HOA you're about to be a part of.
Other: Unique Additions to Consider
Several less common reviews may occur during escrow, depending on the specifics of the transaction. These can include lease review, attorney review, survey review, feasibility review, architect review, and certified public accountant review.
Each review period provides the buyer with an opportunity to thoroughly investigate the property and ensure that they are making a sound investment. Working with a knowledgeable Realtor can help ensure you understand each review period's details and make informed decisions about your purchase.
The escrow process can be complex and overwhelming, but understanding the different reviews and contingencies that occur during escrow can help ease the stress and uncertainty. Multiple contingencies and reviews will be happening at the same time throughout escrow. Your agent will help you stay informed and on track. They're the glue that keeps the sale together, so lean on them for support. With careful research, due diligence, and a bit of patience, you can get to the closing table with ease and confidence.
